Harvard's Ferguson: Eurozone In Danger of Disintegrating

The euro area faces the threat of “disintegration” unless its leaders agree to some form of fiscal union, Harvard University professor Niall Ferguson said.

“Without some kind of much bigger step in the direction of fiscal federalism, we just get one expedient after another and it’s never enough,” Ferguson, 46, said in a Bloomberg Television interview in Copenhagen today. “In that case, a disintegration becomes a real possibility.”

Europe’s 750 billion-euro ($973 billion) rescue facility isn’t big enough and officials’ response to the crisis has been too slow, Ferguson said. European governments are now mulling measures to quell the turmoil including aid for Portugal, debt buybacks and lower interest rates on rescue loans, according to two people with direct knowledge of the talks.

“I don’t think there’s any way at this point that Portugal can or indeed should avoid turning to the European Union or other eurozone countries for assistance,” Ferguson said.

Portugal may receive a loan of about 60 billion euros, according to the two officials familiar with the discussions, who declined to be named because the talks are private. Euro-area finance ministers will discuss elements of the package next week, though the debate is so sensitive in Germany that decisions may wait until a scheduled summit of political leaders on Feb. 4, the people said.

Ferguson, the author of “The Ascent of Money: A Financial History of the World,” warned that the longer euro-area leaders “postpone action, the higher the penalty. There was dithering through Christmas and the New Year and this has been a recurrent feature of this entire crisis. Nobody has been willing to act until long after they should have acted.”

Bond Sale

Portugal today raised 599 million euros in a sale of 10- year bonds at an average yield of 6.72 percent, down from a yield of 6.81 percent at a sale on Nov. 10. Portugal also sold 650 million euros of notes due in 2014 at 5.40 percent.

Greece and Ireland face ‘unsustainable” debt burdens and the austerity measures their programs require them to take may be too severe, Ferguson said. In some cases, governments may deem the cost of austerity as greater than the cost of exiting the single-currency region, he said.

“I’ve become much more pessimistic about the future of the eurozone,” he said.

The euro area faces the threat of disintegration unless its leaders agree to some form of fiscal union, Harvard University professor Niall Ferguson said. Without some kind of much bigger step in the direction of fiscal federalism, we just get one expedient after another...